David Hoster is a very happy man.
Earlier this month, the president and CEO of Jackson-based EastGroup (NYSE: EGP) told shareholders they would receive the company’s 100th consecutive dividend on December 30, an uncommon occurrence in an ever-fluctuating marketplace.
“A major goal of EastGroup is to provide a consistent increasing dividend as part of the total return to our shareholders,” said Hoster. “In addition to the 100 consecutive quarterly dividends, EastGroup has paid dividends in 34 of the 35 years of its existence, and we have increased the dividend in the last 12 years with an annual average increase of 5.6%.”
Only 14 real estate investment trusts (REITs) in America have increased dividends annually for at least 10 consecutive years, placing EastGroup in an elite group of less than 5% of existing REITs to reach that milestone.
Year to date, EastGroup’s average annual total return performance is 22.1%, and for a 10-year period, 22.2%.
“Over the past 25 years, the real estate business has experienced numerous business cycles, and EastGroup has managed to flourish in the good times and stay profitable during the down periods,” said Hoster. “We have consistently maintained a conservative business strategy — we own, operate and lease our properties with low-debt ratios — with a conservative property type of multi-tenant distribution warehouse properties in major sunbelt markets, with an emphasis in California, Texas, Florida and Arizona, and have been able to react quickly to both local market and national economic changes.”
Key changes in EastGroup’s portfolio in 2004:
• In January, the company announced the acquisition of Blue Heron Distribution Center II in West Palm Beach, Fla., for $5.6 million, to increase its presence in the growing Palm Beach County industrial market. The two facilities, totaling 100,000 square feet, were built in 1988 and are adjacent to Blue Heron I, a 110,000-square foot facility that EastGroup has owned since 1999. The purchase included an adjacent 1.56-acre parcel for $450,000, on which the company plans to build a 25,000-square-foot service center development. Blue Heron II was 50% leased at the time of the sale and is projected to generate an unleveraged stabilized yield upon lease-up of approximately 9.5%.
• In June, EastGroup sold the 26,000-square-foot Getwell Distribution Center in Memphis to the user of the space for $790,000, resulting in a $60,000 gain.
• In July, the company acquired Interstate Distribution Center IV, a 46,000-square-foot, multi-tenant distribution center in Dallas for $3 million. Built in 2002, it is 100% leased to nine tenants and is expected to generate an unleveraged yield of approximately 9.3%. That month, EastGroup sold the 18,000-square-foot Sample 95 Business Park III in Pompano Beach, Fla., to its tenants for $2 million, resulting in a gain of approximately $1.2 million.
• In August, EastGroup purchased Alamo Downs Distribution Center in San Antonio for $8.4 million. The two-building distribution complex, which contains 253,000 square feet built in two phases in 1986 and 2002, is 59% leased to seven tenants and is predicted to generate an unleveraged stabilized yield upon lease-up of approximately 10.6%.
• In November, the REIT acquired a 50% undivided tenant-in-common interest in Industry Distribution Center II, a 309,000-square-foot warehouse distribution facility in Los Angeles, “the nation’s healthiest industrial market,” said Hoster.
“As the economy slowed at the beginning of the most recent recession, we adjusted our expectations and marketing plans for vacant space and customer lease renewals to reflect quickly changing industrial market conditions,” said Hoster. “As a result, we sacrificed rental rates to maintain occupancy which somewhat mitigated our overall reduction in rental income. At the same time, we reduced our number of new development starts and tightened our criteria for approving new projects.”
EastGroup has historically maintained a debt-to-total market capitalization ratio below the REIT industry average, providing a cushion in more difficult economic times.
“In addition, industrial — warehouse and distribution — properties are more stable than other types of real estate and do not experience as dramatic swings in their operations with changing economic cycles,” he said. “We understand that dividends are a major reason individuals and institutions invest in REITs so we are very sensitive to the safety and track record of our dividend payments.”
EastGroup’s business model is simple, straightforward and is working, said Hoster.
“We plan to increase our profitability through development, acquisitions and internal growth,” he said. “EastGroup not only pays a consistent increasing dividend but also grows the company and provides a good total return.”
Contact MBJ contributing writer Lynne W. Jeter at firstname.lastname@example.org.